The Corporate Treasury’s New Year’s Resolutions

By Bob Stark January 2, 2014

Happy New Year! Hopefully by now the hangover has worn off, and it’s time to get back down to some serious work.

The start of 2014 sees a variety of storm clouds (read: stress) on the immediate horizon, with regulatory requirements around every corner. SEPA and EMIR both require compliance in just over a month, while Dodd-Frank and FBAR keep our attention closer to home. The biggest concern/opportunity (as it is both) remains potential increases in interest rates and their consequent effect on just about every aspect of our economy. CFOs spend significant time judging what the effect will be on business revenues, cash flow, interest expense, currency rates, counterparty risks, and a host of other variables. In addition, though, there are many areas that are more easily controlled and influenced by corporate treasury teams – and for these areas I suggest five easy to implement New Year’s resolutions:

1.       I will perfect that cash forecast

Currency rates continue to be volatile and this will undoubtedly increase as fiscal policies are implemented in 2014. The cash forecast is the Treasurer’s best weapon to combat volatility as every line item can be stress tested against potential scenarios. However, this assumes that the forecast is accurate and reliable in the first place. And in many cases, this is not the case. Improve forecast accuracy – give the opportunity to confidently make financial decisions and analyses based on a good projection of forecast cash and liquidity.

2.       I will analyze my bank fees

Bank Fee Analysis has been largely restricted to the US in past years. However, 2013 started to see some progress in bank fee reporting (including electronically) in Europe. If European banks are pressured to offer such transparency, Asia is sure to follow. Corporates, however, are the drivers of such change and it is literally in your hands to demand performance from your banking partners. As a corporate, you have literally everything to gain by a) measuring the accuracy of bank fees and b) optimizing use of bank services (meaning both the allocation of services across banks as well as knowing cost/benefit of having some services at all).

3.       I will understand how SWIFT can help me

SWIFT is more than just a tool to provide visibility into international banks that don’t provide BAI files. SWIFT has been somewhat of an evangelist for standardization and commoditization of messaging standards (e.g. XML ISO 20022) and integration (e.g. eBAM). In addition to bank reporting and payments, SWIFT messages are frequently used for financial instrument confirmations (letters of credit, FX trades, Investments, etc.) and will be the standard of choice for eBAM messages as well as digital signatures (which, incidentally, are already used to electronically authenticate payments for many banks in Europe). It is important to know what SWIFT can do for your treasury operation – not to mention understanding the most cost effective ways of getting access to SWIFT (there are choices!)

4.       I will not invest in bitcoin

I would hope that everyone in corporate treasury would know this, at least for their professional roles. The bitcoin is clearly not a currency (see upcoming blog on this subject). However, like any asset with a floating value, if your business has revenues or expenses tied to bitcoins then prudent risk management processes must be followed, just as if your cash flows are exposed to gold, aluminum, cheese – or even ‘real’ currency rates. The real resolution is: know your exposures, forecast their impact, and hedge your risks. Most organizations that say they are naturally hedged do not perform the analysis to actually confirm that is the case. Oops!

5.       I will stop using spreadsheets

Okay, this is an impossible resolution… just like anyone resolving not to eat __________ for the entire year (for me, it’s Oreos). You know you shouldn’t do it, but it’s just not possible to avoid sometimes.

However, a realistic resolution would be to determine the proper role for spreadsheets. A spreadsheet is the perfect tool to analyze data scenarios or stress test financial assumptions – what I call “playing” with the data.

Spreadsheets are not good for automating workflow (e.g. cash positioning), for aggregating data (e.g. cash forecasting), or implementing a workflow of financial steps (e.g. payments initiation/approval or accounting entries). They often aren’t efficient and waste time. But more importantly, they are an operational risk management nightmare. There isn’t a bigger accident waiting to happen than managing your treasury using spreadsheets.

Good luck!

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